Marriner Eccles (1890-1977), a Republican Mormon, rose to great power in Franklin Delano Roosevelt's administration as the head of the Federal Reserve. The banker from Utah helped ease the Great Depression by urging a change in how the government used money to control the economy.
Although he never attended college, Eccles ideas about the economy anticipated those of the famed economist John Maynard Keynes. Eccles argued for deficit spending during the Depression and pushed for a balanced budget during World War II.
Marriner Eccles's father, David, as an illiterate teenager, emigrated from Scotland to America in the 1860s. Settling in Utah, he made a fortune, starting with the ownership of a sawmill and continuing on the road to riches by owning or investing in railroads, coal mines, sugar production, construction, and banks.
David Marriner was a Mormon. He had two wives, who produced 21 children. Marriner was the eldest son of the second wife, Ellen. Marriner Eccles attended schools in his birthplace, Logan, Utah, and spent four years at Brigham Young College. In 1909, he traveled to Scotland, where he spent two years as a missionary. He returned to America with May Campbell Young, whom he married in 1913. The couple had three children.
David Eccles died unexpectedly in 1912. Marriner, at the age of 22, became responsible for his mother, Ellen, and his eight siblings. He was a remarkable businessperson, as was his father. In 1928, he founded one of the first bank holding companies in the United States, First Security Corporation, which ran 28 banks in the western United States. Eccles's Utah Construction helped build Boulder Dam.
The Great Depression began in 1929 when the stock market experienced its worst plunge ever and lost more than $10 billion in value. Over the next three years unemployment rose by the millions, until in 1933, when Franklin D. Roosevelt took office as president, it had reached 13 million. Many banks, farms, and industries failed, and homelessness skyrocketed. When the Great Depression struck, Eccles spent three years trying to prevent "runs" on his bank. (A bank run is when so many depositors withdraw their money that the bank runs out of money and fails.) Eccles succeeded in preventing runs on his banks, but he realized that something needed to be done to solve the economic problems of the country.
Eccles Pushed Deficit Spending
Although he had no formal training in economics, Eccles's reading and thinking led him to certain conclusions about the causes of the Depression. Eccles wrote, "Had there been a better distribution of the current income from the national product—in other words, had there been less savings by business and the higher-income groups and more income in the lower groups—we would have had far greater stability in the economy. Had the $6 billion, for instance, that was loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages, with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that came at the end of 1929."
Eccles concluded that the most important thing in preserving a sound economy is to keep money moving. To transfer it from those who had an excess to those who did not have an adequate amount, the federal government would have to step in. Eccles realized that the government could borrow money from the people who had it and spend it on those who needed it, a principle called deficit spending. In his memoir, Beckoning Frontiers: Public and Personal Recollections, edited by Sidney Hyman, Eccles explained, "A policy of adequate governmental outlays at a time when private enterprise is curtailing its expenditures does not reflect a preference for an unbalanced budget. It merely reflects a desire and the need to put idle men, money and material to work. As they are put to work, and as private enterprise is stimulated to absorb the unemployed, the budget can and should be brought into balance, to offset the danger of a boom on the upswing, just as an unbalanced budget could help counteract a depression on a downswing." The concepts described by Eccles were written about three years later by the famous British economist John Maynard Keynes and came to be known as "Keynesian economics."
Eccles Became a New Dealer
When the democrat Franklin D. Roosevelt became president, he began what was called the "New Deal," a series of strong governmental interventions in the economy intended to ease the hardships of the Great Depression, to lift the nation out of depression, and to prevent another one through reforms.
The United States began to rebound from the stock market crash of October 1929 in the spring of 1933, when a shaky recovery began. Although economic output increased, prices rose, and the stock market went up, the recovery was weak. In 1933, 15 million people were still without jobs.
In 1933, Eccles testified at a Senate hearing about his ideas and about how to ease the effects of the Depression. He suggested that the federal government spend money on unemployment relief, public works, and aid to farmers. Eccles also advised some long-term solutions such as federal insurance for banks, a centralized Federal Reserve System, tax reforms, a minimum wage, unemployment insurance, pensions for the elderly, and governmental regulation of the stock market.
Roosevelt's advisers were impressed with Eccles and asked him to help them create new legislation. As William Greider described it in his book, Secrets of the Temple: How the Federal Reserve Runs the Country, "One summer, Marriner Eccles was struggling to save his small-town banks from failure. The next summer, he was at the center of American political power, an intimate of the President's and a principal architect of the New Deal's reforms."
In September 1934, the president asked Eccles, then a special assistant to Treasury Secretary Henry Morgenthau Jr., to become the next governor of the Federal Reserve Board. The Federal Reserve System, known as "the Fed," had been established in 1913 to create a flexible and sound currency and to make money available to all areas of the country. Eccles told the president that he would only be interested in the position if fundamental changes were made in the Federal Reserve System. Roosevelt asked Eccles to prepare a memorandum on the fundamental changes that he had in mind. Eccles presented his ideas to Roosevelt in November 1934.
The focus of Eccles's suggestions was control of open market operations. This refers to the buying and selling of securities to expand or contract bank reserves, money, and credit. (Open market operations were eventually considered the Fed's most powerful tool.) Eccles recommended that "the power over open market operations … should be taken away from the privately run Federal Reserve banks … [and] vested in an Open Market Committee of the Federal Reserve Board in Washington."
On November 10, 1934, Roosevelt nominated Eccles as head of the Fed. Eccles immediately began writing his Fed reform bill, which reduced the size of the board from eight to five members. Authority over open market operations was given to a new Federal Open Market Committee, formed only of board members, with Federal Reserve banks represented as advisers. The bill lessened the power of the Federal Reserve banks' boards of directors and formed new offices of bank presidents, whose nominations were subject to a Fed board veto. The board also was given more power over discount rates and reserve requirements. Eccles knew that his ideas would cause controversy. Roosevelt told him, "Marriner, that's quite an action program you want. It will be a knockdown and drag-out fight to get it through."
The Eccles bill was introduced in the House of Representatives on February 5, 1935, and in the Senate on February 6. On May 9, the House passed the Banking Act of 1935 on a vote of 271 to 110, with only minor changes. In August, the Senate passed the bill, the basic outlines of which were the same as Eccles had originally proposed: the board's power was increased; the public character of the Fed was enhanced; the independence of the Federal Reserve banks was lessened; and bankers' influence over the system was reduced. The board now had control over open market operations and monetary policy. Roosevelt signed the act into law on August 23. Soon after, he named Eccles chairman of the new Board of Governors of the Federal Reserve System, a position Eccles held until 1948. He served on the Board as a member until 1951.
In August 1937, a serious recession began. One of the causes of this recession was the government's decision to balance the budget, instead of allowing deficit spending to continue. In 1936, the federal deficit was cut in half, with this same halving occurring again in 1937. While the government was slashing the deficit, the Fed was increasing the reserves required of banks, known as tightening, and boosting interest rates. These policies combined to kill the recovery and raise unemployment, although Eccles would not acknowledge any blame for the recession.
After the recession of 1937, Eccles finally convinced Roosevelt that deficit spending was essential, but the amount of spending was still too small to bring about full recovery. By 1939, the United States had achieved a partial economic recovery, but more than 8 million people were still unemployed. The Great Depression did not end until the economy was improved by the national defense program and American involvement in World War II.
War Time Disagreements
During World War II, Eccles argued against the government's cheap-money policies, and he fought the Treasury on how to finance the country's war efforts. Eccles argued for limiting bank activity on the buying and selling of government bonds, but he could not convince the government to do so. He also pushed for higher taxes during the war, which did occur. Although he had earlier promoted deficit spending, Eccles now encouraged Roosevelt to borrow less money and raise more through taxation. David Hage, in a 1995 article in U.S. News & World Report, notes, "The last episode of formal cooperation [between the Fed and the president] occurred in the mid-1940s, when the cost of World War II had driven the federal debt to a staggering 128 percent of gross domestic product, versus about 71 percent today. The Fed agreed to buy any Treasury securities that the public would not, while pegging long-term interest rates at a low 2.5 percent to help America's postwar recovery. The strategy worked: Washington reduced spending by some two thirds after the war, triggering a brief downturn, but low interest rates soon had the economy humming." This cooperation marked some loss of independence for the Fed.
After the war, Eccles pushed for a balanced budget and tighter credit policies. In 1948, President Harry Truman did not reappoint Eccles to the position of chairman of the Fed, however, he remained on the board until 1951.
By 1950, the Fed was concerned about inflation, which had reached almost 7 percent, and wanted its independence back. Eccles embarrassed Truman by leaking the transcript of a meeting at which Truman asked for easy money. After a month of fighting between the Fed and the president, Treasury/Federal Reserve Accord resulted, re-establishing the Fed's independence.
Eccles died in 1977. Although history has largely forgotten his name, he was memorialized on the seventieth anniversary of the Federal Reserve by having its building renamed in his honor. He is considered the first great chairman of the Federal Reserve and one of the three greatest. The bank holding company he founded, First Security, still exists and consists of 270 branches. It is run by Eccles's nephew, Spencer Eccles.
Eccles, Marriner S., Beckoning Frontiers: Public and Personal Recollections, edited by Sidney Hyman, Alfred A. Knopf, 1951.
Greider, William, Secrets of the Temple: How the Federal Reserve Runs the Country, Simon and Schuster, 1987.
American Banker, August 22, 1985, p. 4.
New Leader, March 23, 1992, p. 8.
U.S. News & World Report, June, 26, 1995, p. 46.